There Aren’t Two Labor Markets

Allusions to a labor shortage continue to be ubiquitous. Two weeks ago, the Wall Street Journal published yet another such story under the headline Iowa’s Employment Problem: Too Many Jobs, Not Enough People. Ostensibly about the experiences of companies trying to hire in the one state, the implication was clear enough. If Iowa, IOWA, has a labor shortage, how bad (good) must it be everywhere else?

At the end of last year, the Washington Post wondered the same thing. Using nearly the same headline, 2018’s Challenge, Too Many Jobs, Not Enough Workers, this article describes how they can’t find enough snowplow drivers in Maine, truckers in Texas to haul machinery for the oil boom, and construction jobs in Florida where for many parts of the state it rarely pauses too long without a construction boom.

Yet, for all the hand wringing, small “e” economics still dictates there can’t be any such thing. Businesses faced with opportunity will pay for labor. Period. If they can’t find workers at the current rate, then wages will rise. They aren’t. Not even close.

Only buried deeper within these stories are there ever written more primary objections. The latter article from the Post sums it up pretty well in the one place it’s referenced:

The share of Americans who are either employed or actively looking for work has also shrunk in recent years and is down to 62.7 percent, compared to 66 percent in December 2007, the start of the last economic downturn. The reason is still up for debate, but economists generally agree the tumble is troubling.

That’s ultimately, I think, the point. It isn’t up for debate but should be. According to all these categorical accounts of this labor shortage the matter has been completely settled. Even the CBO’s latest figures for economic potential agrees with that conclusion. The unemployment rate is accurate, they claim, therefore the labor shortage has to be real, wage inflation will be, too, and a boom that has somehow been avoided won’t be for much longer.